August 25, 2015

Posted by Bill Esterson on August 25, 2015

Having the right economic policy is essential if we are to ensure that this country is successful, if we are to have improving living standards, if our young people are to have the prospect of well paid jobs.

This country is in danger of relying on too many low skill, low paid jobs.

Our objective should be to have a high skill, high paid economy, building on our successful science, creative, media, aeronautical and automotive sectors.

Because the economy is so important, I wanted to improve my understanding of what is needed to turn our economy round, so I was delighted to be elected by other MPs to be a member of the treasury Select Committee.

Much has been said about what caused the financial crisis of 2007 and 2008.

Lehman Brothers and other major financial institutions collapsed in the United States.

Meanwhile, 58 countries around the world were hit with severe recessions.

The cause of the crisis was irresponsible lending in the United States and elsewhere to people who could never repay their loans.

These so-called sub-prime loans, usually mortgages were then sold with other so-called prime loans to create financial products or derivatives that appeared to be 'safe' financial products.

When the crisis hit, the scale of this lending was so big it threatened the entire financial system of the world.

We were only hours away from the banks having to close and from cash points in this country running out of money.

You may have seen pictures on your TV recently of something similar happening to the people of Greece.

It is true to say that regulation of the banks had been relaxed.

This was clearly a mistake, although some people, including our Conservative Chancellor, George Osborne wanted the even less regulation at the time.

In this country, the financial services industry is a big part of our economy, so the crisis had a larger impact here than elsewhere. And when the crisis hit, the financial services companies stopped paying tax because their profits were wiped out as part of that crisis.

The loss of that tax meant that the government suddenly lost a big part of its income.

But when the government stopped receiving as much money in taxes, it was suddenly paying more than it was receiving, otherwise known as a deficit.

So the deficit which shot up was the result of the financial crisis and the fall in tax revenues from the financial services industry which happened when the crisis hit.

So, Labour did not cause the financial crisis or the collapse of Lehman Brothers or recessions in 58 countries.

And Labour did not cause the increase in the deficit, that was the result of the financial crisis.

We did increase the national debt when we bailed out the banks and when we decided to try to support the economy.

But this support meant that compared to the recessions of the 1980s and 1990s, half the number of people lost their jobs, half the number of homes were repossessed and half the number of businesses failed.

When the Conservatives came to power in 2010, they stopped the support for the economy and with the full support of the Lib Dems, we saw the slowest recovery from recession since records began.

Chancellor, George Osborne said he would get rid of the deficit but failed to do so because he delayed recovery.

Long term, the only way to get rid of the deficit is to grow the economy.

Growth is still sluggish and the wrong lessons are still being applied from the financial crisis.

We were recovering from the crisis in 2010 until the Conservatives took over.

Now any recovery is based on low wages and low skills, when we need a high skill, high wage solution.

I shall use my membership of the Treasury Committee to seek evidence of the the right way to run our economy, for businesses, for jobs and for growth.

We have five more years of Conservative government.

I hope that they will listen to the evidence about what is needed.

If not I fear that the deep seated problems in our economy will grow worse, with bad news for the people of this country.

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